SOMERVILLE — With the new ShopRite expected to open within weeks, Borough Council on Sept. 6 approved an ordinance that enables the mayor to sign a long-term tax abatement agreement with its developer, Jack Morris of Somerville Urban Renewal Phase I, LLC.

The supermarket is expected to open early in October, according to Colin Driver, the borough’s director of economic development. “It’s moving like greased lightning,” he said last month, before Hurricane Irene and the current flooding hit the borough. At that point, about 150 tradesmen and -women were on site, Driver said. “Stuff is going on like a beehive.”

Meanwhile, borough officials are negotiating a tax abatement agreement with Morris to incrementally increase tax payments over time and limit the company's overall tax burden to what it would pay the municipality, without including county, school or library taxes.

The state allows municipalities to enter into such agreements with redevelopment property owners because it is chiefly the municipality that is impacted by such projects, said Driver.

Municipal tax is used to offset the cost to maintain and repair infrastructure, such as roads and sewer lines, and services such as policing, Driver said. There’s little impact on schools or library usage, for example, because downtown redevelopment areas rarely become housing for families with school age children. According to Driver, a recent study by Rutgers showed that typical housing developments generate families with 2.2 children per unit, but downtown housing is home to about one school-age child for every 10 units. A survey of Main Street apartments about five years ago turned up only one child in the school system, he said.

The deal between the developer and the borough represents long term tax abatement.

The plan would allow the borough to use a portion of the taxes to pay off the “soft costs” of a $5 million bond it issued to contribute to the project — and not put the burden of paying for those costs on other borough taxpayers. The $5 million bond is to be paid off over a maximum of 20 years through another state program, using 75% of the supermarket’s annual sales tax collections.

A final aspect of the deal is an annual payment to the borough based on a portion of the developer’s annual gross revenues from rents, etc. Determining what the percentage would be is the focus of the ongoing negotiations between borough officials and Somerville Urban Renewal Phase I, LLC.

“We haven’t finally determined what the percentage would be,” said Driver. “We’re discussing a minimum of 15%, but it’s not final.”

Attaching the tax payment to the developer’s revenues means it could fluctuate somewhat, depending on tenants and rents. Typically, borough income would increase as rents and other income increases with market demand, he said.

“We’re going to reinvest a whole lot of money into this and other redevelopment,” Driver said. “If we use this formula, it allows us to fund what we may have to do (as time goes on.)” It also sends a message to Somerville Urban, he said. “It says, ‘We’ll take the risk the same as you to make this work.’” If the payment was fixed, Driver said, and the company’s revenues were off, it could try to renegotiate. “This way the revenue matches the market conditions.”

Whatever the final numbers, the deal has to be signed by the two parties when ShopRite gets its certificate of occupancy, Driver said, which could be by the end of the month.
Reach Warren Cooper at wcooper@njnpublishing.com or 908-948-1261.